What happens if I cannot pay my taxes?
With tax season right around the corner, Massachusetts residents should begin to make their plans and understand their options for paying their federal income tax bills, including reviewing their options if they are unable to pay their taxes.
With the holidays now over and the new year well underway, many people in Massachusetts might be getting their arms around any debt they amassed during the previous year, including spending for holiday gifts or gatherings. As they make plans for how they will pay that debt, they should also be factoring in the upcoming tax season. A tax refund might be a great way to help pay off existing debt. However, for people who end up owing taxes on top of other debt, the start of 2020 could find them struggling with how to pay their tax debt. Knowing the options and best way to proceed in this scenario is important before it happens.
Always file on time
The importance of filing a federal tax return on time cannot be emphasized enough. The financial expert and consumer advocate, Dave Ramsay, asserts taxpayers should file their returns even if they do not submit any required payment at the time to help reduce the penalties that they may incur.
If a person does not have the liquid assets available to pay a tax bill by April 15, NBC News indicates that they might want to consider credit options. If they have sufficient credit, they may qualify for an unsecured personal loan that can be used to pay the Internal Revenue Service.
Credit cards may be used to make payments to the IRS, although the consumer will be charged a processing fee on top of the tax amount. One strategy to avoid paying interest on a credit card balance is to open a new account with a no-interest offer for a period. During the zero-interest time, the person could pay off the balance and avoid the interest.
IRS payment plan options
The IRS does offer both short-term and long-term installment payment plans for people who cannot pay their taxes in full on time. Both plans have limits on the amount of money that a person may owe, including interest and penalties. Short-term plans allow up to 120 days to satisfy a tax debt while long-term plans provide more time.
Interest and penalties accrue during the payment plan period and the IRS automatically applies any future refunds to the balance due until the taxes have all been paid.
Consultation with an attorney is recommended
When dealing with the IRS and federal taxes, consumers in Massachusetts are advised to consult with an experienced lawyer before making final decisions on how to address the payment of their taxes.